A report released last week by the House of Lords Economics Affairs Committee provided a startling indictment on what it sees as the government's lack of progress in addressing the housing shortage. The report specifically highlights the government for setting a new homes target that will fail to meet the demand for new homes or moderate the rate of price increases.
It is also deeply critical of the restrictions on local authorities' access to funding to build more social housing. The report was also deeply scathing about the uncertainty created in an already dysfunctional housing market by frequent tax changes and subsidies for house purchases, reductions in social rents and the extension of the Right to Buy scheme, all of which reduce the supply of homes for those who need low-cost rental accommodation.
Among its recommendations, the report said that the government needs to make greater use of public land, while local authorities should be granted the power to increase planning fees to help deal with the increased workload.
So, with a clean sweep on the political front, perhaps it's now time to consider applying the same brush to the raft of recent measures affecting the property market that have created such uncertainty and resentment.
As a way of kick-starting the housing market, measures could be introduced to reduce or even reverse the higher stamp duty charge in order to create a more sustainable and transparent platform for potential investors keen to secure a reasonable yield on their investments, something that the nominal return on so-called risk-free investments makes even more pressing.
None of these proposals will find favour within the Treasury, where the overriding mindset is to squeeze the economy for more taxes in order to reduce the budget deficit. However, with a new chancellor at the helm, there is a chance that the handbrake on fiscal restraint may at least be loosened a notch or two.
The report reckons that 300,000 new homes will be needed each year to satisfy demand, and that the private sector alone has no chance of meeting this
On new homes, the report reckons that 300,000 new homes will be needed each year to satisfy demand, and that the private sector alone has no chance of meeting this; it never has. That means that housing associations and local authorities need to step into the gap, a gap created by the fact that, while the private sector has consistently built on average between 150,000 and 200,000 homes each year, local authority led construction has fallen since the last 1960s from 150,000 a year to virtually nothing. A return to this sort of level requires a comprehensive funding programme at a time when councils have been consistently and increasingly starved of funding.
However, any idea that the UK would be able to build 1m new homes by 2020 should not be taken as meaning that house price inflation will disappear. The report suggests that house price inflation will remain at 5-6 per cent on average each year over the next four years, which drives a horse and cart through recent projections citing a general decline in house prices as the UK economy swoons into a potential recession. That's good news for landlords worried about a possible avalanche of supply putting downward pressure on prices and rents. Currently, all evidence suggests that closing the supply/demand imbalance to any significant extent simply won't happen unless there are changes.
Analysts at Peel Hunt have generated a wish list of potential measures that could provide a pillar of support. The Help to Buy scheme now accounts for nearly one-third of all new housing transactions, and while interest-free equity loans have been increased for purchases in London to 40 per cent, the scheme could be extended to cover the rest of the country, where it is currently 20 per cent. This could result in annual mortgage cost savings of around £2,000 a year on average buying prices.
There is also room for introducing a holiday on stamp duty on transactions up to £250,000, as was introduced on a temporary basis in 2010. This would apply to nearly three-quarters of all housing transactions, but only 12 per cent (around £900m) of stamp duty revenue. And while a cut in bank base rates would make a small contribution as well, much would depend on the cost of wholesale money and whether banks were willing to see a squeeze on margins.
Overriding all of this is the state of the economy. Demand for new housing will not go away, but a sharp fallback in GDP growth could see much of this demand mothballed, as it was in the last recession. And if the UK is to escape recession, there is the question of how well builders can respond to measures making it easier to buy a new home. If there is no increase in output, the consequences could see a greater number of prospective buyers enabled to chase a shortage of supply, thus underpinning house price inflation.